MISSISSIPPI INSURANCE DEPARTMENT
Report of Examination
of
SOUTHERN FARM BUREAU CASUALTY
INSURANCE COMPANY
as of
December 31, 2010
TABLE OF CONTENTS
Examiner Affidavit .................................................................................................................................. 1
Salutation ................................................................................................................................................. 2
Scope of Examination .............................................................................................................................. 3
Comments and Recommendations of Previous Examination .................................................................. 3
History of the Company ........................................................................................................................... 3
Corporate Records ................................................................................................................................... 4
Management and Control ......................................................................................................................... 4
Stockholders ................................................................................................................................ 4
Board of Directors ...................................................................................................................... 5
Committees ................................................................................................................................. 6
Officers ....................................................................................................................................... 8
Conflict of Interest ...................................................................................................................... 8
Corporate Governance ................................................................................................................ 8
Holding Company Structure .................................................................................................................... 9
Organizational Chart .................................................................................................................. 9
Affiliated and Related Party Transactions ................................................................................ 11
Fidelity Bond and Other Insurance ........................................................................................................ 12
Pensions, Stock Ownership and Insurance Plans ................................................................................... 12
Territory and Plan of Operation ............................................................................................................. 12
Growth of Company .............................................................................................................................. 13
Mortality and Loss Experience .............................................................................................................. 13
Reinsurance ............................................................................................................................................ 13
Accounts and Records ............................................................................................................................ 15
Statutory Deposits .................................................................................................................................. 15
Financial Statements .............................................................................................................................. 16
Introduction .............................................................................................................................. 16
Statement of Assets, Liabilities, Surplus and Other Funds - Statutory..................................... 17
Statement of Income - Statutory ............................................................................................... 18
Reconciliation of Capital and Surplus - Statutory .................................................................... 19
Reconciliation of Examination Adjustments to Surplus - Statutory ......................................... 20
Market Conduct Activities ..................................................................................................................... 21
Commitments and Contingent Liabilities .............................................................................................. 21
Subsequent Events ................................................................................................................................. 21
Comments and Recommendations ......................................................................................................... 21
Acknowledgment ................................................................................................................................... 22
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 2
April 2, 2012
Honorable Mike Chaney
Commissioner of Insurance
Mississippi Insurance Department
1001 Woolfolk Building (39201)
Post Office Box 79
Jackson, Mississippi 39205
Dear Commissioner Chaney:
Pursuant to your instructions and authorization and in compliance with statutory provisions, an
examination has been conducted, as of December 31, 2010, of the affairs and financial condition of:
SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY
1800 East County Line Road
Ridgeland, MS 39157
License #
NAIC Group #
NAIC #
FEETS#
ETS#
7700932
0483
18325
MS029-F4
MS120-M4
This examination was commenced in accordance with Miss. Code Ann. §83-5-201 et seq. and
was performed primarily in Ridgeland, Mississippi, at the statutory home office of the Company.
The report of examination is herewith submitted.
MIKE CHANEY
Commissioner of Insurance
State Fire Marshal
MARK HAIRE
Deputy Commissioner of
Insurance
MAILING ADDRESS
Post Office Box 79
Jackson, MS 39205-0079
TELEPHONE: (601) 359-3569
FAX: (601) 359-1951
MISSISSIPPI INSURANCE DEPARTMENT
501 N. WEST STREET, SUITE 1001
WOOLFOLK BUILDING
JACKSON, MISSISSIPPI 39201
www.mid.state.ms.us
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 3
SCOPE OF EXAMINATION
We have performed our full-scope financial examination of Southern Farm Bureau Casualty
Insurance Company (“SFBCIC” or “Company”). For purposes of this examination report, the
examination date is defined as December 31, 2010. The examination period is defined as January
1, 2008 through December 31, 2010, including material transactions and/or events occurring
subsequent to the examination date through April 2, 2012. The last examination was completed
as of December 31, 2007.
We conducted our examination in accordance with the NAIC Financial Condition Examiners
Handbook (“Handbook”). The Handbook requires that we plan and perform the examination to
evaluate the financial condition and identify prospective risks of the company by obtaining
information about the company, including corporate governance, identifying and assessing
inherent risks within the company, and evaluating system controls and procedures used to
mitigate those risks. An examination also includes assessing the principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation, management’s compliance with Statutory Accounting Principles and annual
statement instructions, when applicable to domestic state regulations.
All accounts and activities of the Company were considered in accordance with the risk-focused
examination process.
COMMENTS AND RECOMMENDATIONS OF PREVIOUS
EXAMINATION
There were no comments and/or recommendations made by the Mississippi Insurance
Department (“MID”) examination team in the previous examination report, which covered the
period from January 1, 2005 through December 31, 2007.
HISTORY OF THE COMPANY
In 1947, the Farm Bureau Federations located in the states of Arkansas, Florida, Mississippi and
Texas organized individual investment corporations for the purpose of organizing the Company.
On September 25, 1947, the Company was incorporated under the laws of the State of
Mississippi as a property and casualty insurance company, with business commencing on
September 30, 1947. Subsequently, the Louisiana, South Carolina and Colorado Farm Bureau
Federations acquired equal shares of the Company’s capital stock and Florida sold its interest
back to the Company.
Through December 31, 2008, the outstanding shares of the Company were owned by the Farm
Bureau Federations in six states through the following investment/holding corporations:
Arkansas Casualty Investment Corporation, Mississippi Farm Bureau Holding Corporation,
Texas Farm Bureau Investment Corporation, Louisiana Farm Bureau Investment Corporation,
South Carolina Farm Bureau Investment Corporation and Colorado Farm Bureau Investment
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 4
Company. Each entity held 666.6 shares or 16.67% of the 4,000 authorized shares of the
Company.
The Texas parties withdrew from the Company as of December 31, 2008, and surrendered its
666.6 shares of the Company’s stock in exchange for the shares of the Company’s wholly-owned
subsidiary operating in the state of Texas formed for purposes of the withdrawal. Because of the
withdrawal of the Texas parties, the Company and its remaining shareholders desired to amend
the Articles of Association, the Bylaws and the Amended Membership Treaty under which it had
operated. On December 14, 2009, the Treaty was terminated and a new organization structure for
the Company was created (the “reorganization”). In connection with the reorganization, the
Company amended and restated its existing Articles and Bylaws and entered into a Shareholders
Agreement with the Farm Bureau State Organizations (other than the Florida Farm Bureau
Federation) and Investment Companies (other than Florida Farm Bureau Federation (“FFBF”)
Investment Corporation.) All existing shares of equity in the Company were exchanged for
newly-issued shares of the Company in connection with the reorganization. At the time of the
reorganization, shares were also issued to FFBF Investment Corporation pursuant to a
Subscription Agreement between FFBF Investment Corporation and the Company under which
FFBF Investment Corporation and Florida Farm Bureau Federation became parties to the
Shareholder Agreement. Subsequent to the reorganization, there are currently 10,428,000 shares
of $1 par value common stock authorized and 1,082,842 issued. Of the issued shares, 2,640
shares are voting and 1,080,202 are non-voting shares.
CORPORATE RECORDS
The Articles of Incorporation, Bylaws and amendments thereto were reviewed and duly applied
in other sections of this report where appropriate. Minutes of the meetings of the stockholders,
Board of Directors (“Board”) and various committees, as recorded during the period covered by
this examination, were reviewed and appeared to be complete and in order with regard to actions
brought up at the meetings for deliberation and appropriate action, which included the approval
and support of the Company’s transactions and events, as well as the review of the audit and
examination report.
MANAGEMENT AND CONTROL
Stockholders
During the time period covered by this examination, the Company reported as a member of an
insurance company holding system as defined by Miss. Code Ann. §83-6-1. Pursuant to these
filings, the Company’s outstanding shares are owned by the following: Arkansas Casualty
Investment Corporation, Mississippi Farm Bureau Holding Corporation, Louisiana Farm Bureau
Investment Corporation, South Carolina Farm Bureau Investment LLC, Colorado Farm Bureau
Investment Company and FFBF Investment Corporation. Shares owned by each of the
aforementioned entities are as follows:
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 5
There are 10,428,000 shares of $1 par value common stock authorized and 1,082,842 issued and
outstanding. Of issued shares, 2,640 are voting and 1,080,202 are non-voting. The Company
paid the following amounts as dividends to stockholders during the examination period.
2010
$5,467,010
2009
$ 44,000
2008
$ 52,800
Board of Directors
The Articles of Incorporation and Bylaws vest the management and control of the Company’s
business affairs with the Board. The Company’s Board is comprised of 24 members, all of whom
are chosen from among the states of Arkansas, Colorado, Florida, Louisiana, Mississippi or
South Carolina (each a “State Farm Bureau”). Each State Farm Bureau President is a member of
the Board. The members of the duly elected Board, along with their place of residence, year
elected/appointed, and principal occupation, at December 31, 2010, were as follows:
Name and Residence
Year
Elected/Appointed
Principal Occupation
Ronald Roy Anderson
Chairman of the Board
Ethel, LA
1985
Farmer and President of Louisiana
Farm Bureau Federation
John Lawrence Hoblick, Sr.,
Vice Chairman of the Board
DeLeon Springs, FL
2000
Farmer and President of Florida
Farm Bureau Federation
Mark Allen Byrd
Apopka, FL
2007 Nursery Owner
Joe Wayne Christian
Jonesboro, AR
2010 Farmer
Terry Glenn Dabbs
Stuttgart, AR
2010 Farmer
Douglas Wayne Duty
Monroe, LA
2010
Retired Senior Sales Specialist from
Bayou Crop Scientist and Farmer
Alan Lee Foutz
Akron, CO
2005
Farmer and President of Colorado
Farm Bureau Federation
Shares
Outstanding:
Arkansas Colorado Florida Louisiana Mississippi
South
Carolina
Total
Class A
220
220
220
220
220
220
1,320
Class B
370,765
1,316
--
321,893
229,104
157,124
1,080,202
Class C
550
--
--
440
220
110
1,320
Total
371,535
1,536
220
322,553
229,544
157,454
1,082,842
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 6
Donald Hubert Gant
Merigold, MS
2007 Farmer
Ben Martin Gramling II
Gramling, SC
1997 Agri-business / Development
Jim Toney Harper
Cheneyville, LA
2010 Farmer
Rich Edward Hillman II
Carlisle, AR
2009
Farmer and Vice President of
Arkansas Farm Bureau Federation
Thomas Scott Jones
Pottsville, AR
2010 Rancher
Randy Lee Knight
Pelahatchie, MS
2007 Farmer
Billy Regionald Magee
Mt. Olive, MS
2010 and
1999-2007
Self-Employed Farmer
Clinton Willie Sease
Lexington, SC
2009 Farmer
Donald James Shawcroft
Alamosa, CO
2010 Self-Employed Farmer
Russell McKinney Smith
Des Arc., AR
2010 Farmer
Leo Carl Sutterfield, Jr.
Mtn. View, AR
2010 Banker
Jackie Joseph Theriot
St. Martinville, LA
2003 General Manager
Harry Randall Veach
Manila, AR
2004
Farmer and President of Arkansas
Farm Bureau Federation
David Whitmire Waide
West Point, MS
1995
Farmer and President of Mississippi
Farm Bureau Federation
Scott McDonald Wiggers, Jr.
Winnsboro, LA
2010 Farmer
David Melton Winkles, Jr.
West Columbia, SC
1998
Farmer and President of South
Carolina Farm Bureau Federation
Linda Zaunbrecher
Gueydan, LA
1993 Farmer
Committees
During the time period covered by this examination, the following committees were utilized by
the Company to carry out certain specified duties: Executive Committee, Audit Committee,
Investment Committee and Compensation Committee.
Executive Committee:
The Executive Committee consists of the Presidents from each of the State Farm Bureaus who
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 7
serve on the Board. The Chairman of the Board is also the Chairman of the Executive
Committee. The Executive Committee has the power to exercise, conduct and control the
business of the Company between meetings of the Board. The Executive Committee has the sole
and exclusive power and authority to declare additional dividends.
Audit Committee:
The Audit Committee has six members, all of whom are outside directors which meets the
requirements set forth by the Model Audit Rule. The Audit Committee is responsible for
reviewing the audit report prepared by the outside accounting firm and making recommendations
to the Board regarding the audit report and the selection of an outside accounting firm. The Audit
Committee is also responsible for overseeing the Company’s compliance with the Annual
Financial Reporting Model Regulation and for making sure management establishes,
implements, and monitors the system of internal controls over financial reporting.
Investment Committee:
The Investment Committee is comprised of Board and non-Board members; however, one
member of the committee must be the Chairman of the Board. The committee delegates the
authority to transact the routine day to day investment duties including, but not limited to, the
sale, purchase, and transfer of stocks, bonds, securities, and other investments, both real and
personal. The Investment Committee reports to the Board regarding the condition of the funds,
securities and investments of the Company.
Compensation Committee:
The Compensation Committee is comprised of the Presidents from each of the State Farm
Bureaus. The Chairman of the Board is also the Chairman of the Compensation Committee. The
Compensation Committee duties include reviewing and making recommendations to the Board
with respect to compensation and to perform such other duties as appropriate for the committee
or as delegated by the Board.
The following members served on the committees mentioned above at December 31, 2010.
Executive Audit Investment Compensation
Ronald Roy
Anderson, Chairman
John Lawrence Hoblick,
Sr., Chairman
Dennis Ray Griffin,
Chairman
Ronald Roy
Anderson, Chairman
Alan Lee Foutz Ronald Roy Anderson
Ronald Roy
Anderson
Alan Lee Foutz
John Lawrence
Hoblick, Sr.
Alan Lee Foutz Thomas Arthur
John Lawrence
Hoblick, Sr.
Harry Randall
Veach
Harry Randall Veach
Judith Goodwin
Blackburn, Secretary
Harry Randall Veach
David Whitmire
Waide
David Whitmire Waide Robert Paul Jarratt
David Whitmire
Waide
David Melton
Winkles, Jr.
David Melton Winkles, Jr.
David Melton
Winkles, Jr.
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 8
Officers
The officers of the Company at December 31, 2010 were:
Name of Officer
Number of Years
with Company
Title
Ronald Roy Anderson
25
Chairman of the Board
Robert Paul Jarratt
42
President and Chief Executive Officer
Dennis Ray Griffin
32
Senior Vice President - Chief Financial Officer
Steven Walter Ingram
28
Senior Vice President - Legal and Secretary
Judith Goodwin Blackburn
28
Senior Vice President and Treasurer
John Russell McCollough
15
Senior Vice President - Actuary
Mark Gerard Gianfrancesco
13
Senior Vice President - Marketing
Geoffrey Alan Mercer
25
Senior Vice President - Technology
Jack Carlton Williams, Jr.
22
Senior Vice President – State Manager –
Mississippi
Blaine Vernon Briggs
25
Senior Vice President - State Manager – Louisiana
William O’Neil Courtney
26
Senior Vice President – State Manager – Florida
Robert Duff Wallace
27
Senior Vice President - State Manager – Arkansas
Phillip Eugene Love, Jr.
26
Senior Vice President - State Manager - South
Carolina
Jack Pinkney Anderson
34
Senior Vice President – State Manager – Colorado
Conflict of Interest
The Company has formal procedures whereby disclosures were made to the Board of any
material interest or affiliation on the part of any officer or director that was, or would likely be, a
conflict with their official duties.
Corporate Governance
Upon review of the corporate governance structure, it was noted that the Company has a very
stable and experienced management team with the vast majority of officers having at least 15
years of experience with the Company. There did not appear to be any compensation
arrangements that caused unusual emphasis on earnings. Management records, such as Board
minutes, appeared to be in order.
The Board’s involvement and oversight was considered during the course of our examination.
Other key variables in our consideration of the Board’s involvement included but were not
limited to factors such as: (1) the frequency of Board meetings and attendance of the directors,
(2) the sufficiency and timeliness of information provided to the Board prior to meetings, (3) the
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 9
topics discussed along with the depth and quality of discussions, (4) key communication
channels between management and the Board, and (5) the Board’s role in setting the overall
“tone at the top”. Information regarding the Board members, committees and other related
information can be found in the Management and Control section of this report.
The appropriateness of the entity’s organizational structure and its ability to provide the
necessary information flow to manage its activities were considerations in obtaining our
understanding of the organizational structure. This includes consideration of the entity’s
decentralized structure and the Company’s move toward a more centralized organization. Our
consideration also encompassed understanding the assignment of authority and responsibility.
Our consideration of corporate governance encompassed the risk management function through
discussions with senior management and members of the Board and through gaining an
understanding of the risk management function including inspection of relevant risk management
documentation. Upon our review and consideration of these components and functions, there
were no material concerns or exceptions noted.
Management competence is a consideration in overall assessment of corporate governance. In
our review of this area, we considered factors such as management’s experience level and
management turnover. There were no material concerns noted upon our consideration of this
area. As indicated in the Management and Control section of this report, key management has
significant experience with the Company and the officer/employee turnover ratio was low.
HOLDING COMPANY STRUCTURE
During the time period covered by this examination, the Company reported as a member of an
insurance company holding system as defined by Miss. Code Ann. §83-6-1. Holding Company
Registration Statements, for the period under examination, were filed with the MID in
accordance with Miss. Code Ann. §83-6-5 and §83-6-9.
On April 2, 2012, the MID gave notice that it would conduct an examination of SFBCIC and
other Farm Bureau related entities pursuant to §83-6-27, Mississippi Code of 1972 (the “Code”)
and other applicable laws and regulations of the MID including, but not limited to, §83-6-1, et
seq. of the Code (the “Holding Company Act”). The examination will include a review of the
relationships between SFBCIC and other associated companies and entities to determine
compliance with applicable Mississippi laws and MID regulations.
Organizational Chart
Pursuant to the Holding Company Registration Statements filed by the Company as of December
31, 2010, the organization chart below displays the identities of the members of the Company’s
holding company structure as reported by the Company, and is followed by a brief description of
the Company’s subsidiaries:
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 10
The Company reported SFBCIC as the ultimate controlling person in the Holding Company
Registration Statements filed by the Company with the MID as of December 31, 2010. Pursuant
to these filings, the Company’s outstanding shares are owned by the following: Arkansas
Casualty Investment Corporation, Mississippi Farm Bureau Holding Corporation, Louisiana
Farm Bureau Investment Corporation, South Carolina Farm Bureau Investment LLC, Colorado
Farm Bureau Investment Company and FFBF Investment Corporation.
Below is a description of the Company’s wholly owned subsidiaries at December 31, 2010:
Southern Farm Bureau Property Insurance Company (“SFBPIC”): This company was
incorporated on August 1, 1994, under the laws of the State of Mississippi. Effective January 1,
2007, the Company no longer conducted any active underwriting activities and essentially
became inactive. The sole reinsurance activities of SFBPIC consist of runoffs associated with
reinsurance contracts entered into and terminated prior to January 1, 2007. No new contracts
have been executed subsequent to January 1, 2007.
Southern Farm Brokerage Company: This company was incorporated on June 20,1994, under
the laws of the State of Mississippi, and its principal business is compiling, organizing and
analyzing insurance related data and statistics; soliciting, brokering, negotiating and/or placing
all forms of insurance contracts (except life, health and accident insurance); engaging in real
estate transactions, joint ventures, and real estate development; and engaging in any other lawful
activities of a Mississippi business corporation.
Mississippi Farm Bureau Casualty Insurance Company (“MFBCIC”): This company was
incorporated on May 19, 1986, under the laws of the State of Mississippi, and its principal
business is providing casualty insurance coverage (principally automobile and homeowner) and
property coverage in the State of Mississippi.
Florida Farm Bureau Casualty Insurance Company (“FFBCIC”): This company was
incorporated on April 16, 1974, under the laws of the State of Florida, and its principal business,
in association with its wholly owned subsidiary, Florida Farm Bureau General Insurance
Company, is providing casualty insurance coverage (principally automobile, property and
general liability) in the State of Florida.
Louisiana Farm Bureau Casualty Insurance Company (“LFBCIC”): This company was
Southern Farm Bureau Casualty Insurance Company
Southern Farm
Bureau Brokerage Co.
Highland Colony Land Company
Limited Liability Company
25% Membership Interest
Southern Farm
Bureau Property
Insurance Company
Louisiana Farm
Bureau Casualty
Insurance Company
Florida Farm Bureau
Casualty Insurance
Company
Florida Farm Bureau
General
Insurance Company
Mississippi Farm
Bureau Casualty
Insurance Company
Arkansas Farm Bureau
Casualty Insurance
Company
SFB Investments
Limited Liability
Company
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 11
incorporated on February 16, 1981, under the laws of the State of Louisiana, and its principal
business is providing casualty insurance coverage (principally automobile) and processing claims
in the State of Louisiana.
Arkansas Farm Bureau Casualty Insurance Company: This company was incorporated on
February 6, 2004, under the laws of the State of Arkansas and its principal business purpose is
providing casualty insurance in the State of Arkansas. At the report date, this company was
inactive.
SFB Investments, LLC: This company was incorporated on August 11, 1997, under the laws of
the State of Mississippi and was formed to take advantage of certain investment opportunities. At
the report date, this subsidiary was inactive. Subsequent to the examination date, this subsidiary
was administratively dissolved.
Affiliated and Related Party Transactions
The Company’s transactions with its related parties were reviewed and the following items were
deemed notable for purposes of this report:
• The Company filed consolidated federal income tax returns, which included the operating
results of SFBCIC and its subsidiaries; income taxes were allocated to the subsidiaries as
though separate tax returns had been filed.
• In order to protect its trade name the Company entered into a Limited Indemnity
Agreement with the Mississippi Farm Mutual Insurance Company which had been
significantly impacted by Hurricane Katrina. The beginning balance of the agreement
was $200,000,000, and as of the examination date, $179,330,000 has been paid out since
2005. The balance remaining under the agreement as of the examination date was
$20,670,000, which has been extended to December 31, 2012.
• The Company had a management contract with SFBPIC in which SFBCIC provided
services to SFBPIC in the areas of legal, accounting, claims, underwriting, information
services, etc. During 2010, SFBCIC received $315,000 as compensation for services
rendered.
• The Company entered into a Surplus Contribution Agreement in which MFBCIC issued
and sold to the Company a surplus note in the principal amount of $25 million. The
unpaid principle balance of the note accrues interest at the rate payable on a 20 year US
Treasury Bond as of the date of the surplus note. The rate is adjusted every two years
from the date the note was issued to the current rate of a 20 year US Treasury Bond.
• The Company had an expense agreement with MFBCIC and FFBCIC in which the
companies share in certain overhead expenses that the companies deem mutually
beneficial as they purport to allow for more efficient and economical operation.
The Company had agreements with other Farm Bureau companies that provide for the rental of
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 12
office facilities, equipment, automobiles, data processing, as well as the allocation of certain
operating and underwriting expenses. Management believes these agreements are beneficial to
the Company in providing greater operating efficiency and prompt service to its policyholders.
FIDELITY BOND AND OTHER INSURANCE
The Company was insured under various insurance policies to protect its interest. In particular, the
Company maintained directors and officers coverage, professional liability coverage, electronic and
computer crime coverage, and fidelity coverage. The Company had a financial institution bond with
a $5 million single loss limit of liability and a fiduciary liability policy with a $10 million single loss
limit of liability. These coverages exceeded the NAIC’s suggested minimum amount for fidelity
coverage.
PENSIONS, STOCK OWNERSHIP AND INSURANCE PLANS
The Company provided a noncontributory retirement plan, a 401(k) plan, a flexible spending
plan, as well as various insurance coverages, which included group term life, medical and
dental, accidental death, long-term disability and worker’s compensation. Provisions were made
within the financial statements for obligations in regard to the benefits and welfare programs
provided.
TERRITORY AND PLAN OF OPERATION
The Company specializes in personal lines, primarily casualty insurance coverages with an
emphasis on private passenger auto and farm general liability coverages. The Company is a
multi-line regional property and casualty insurance company operating in six states: Arkansas,
Colorado, Florida, Louisiana, Mississippi and South Carolina.
The Company direct writes the automobile business in the states of Arkansas, Louisiana and
South Carolina. Additionally, the Company assumes the automobile business from Farm Bureau
mutual companies in the states of Colorado, Louisiana and South Carolina. LFBCIC and
MFBCIC have written policies on a direct basis and is ceding all general liability and automobile
business to SFBCIC under a quota share agreement. No automobile business is written directly
by SFBCIC in the state of Florida, nor is any automobile business assumed from Florida.
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 13
GROWTH OF COMPANY
2010 2009 2008
Total admitted assets 1,805,381,000$ 1,767,435,000$ 2,648,754,000$
Total liabilities 741,719,000$ 730,696,000$ 1,062,990,000$
Total capital and surplus 1,063,662,000$ 1,036,739,000$ 1,585,764,000$
Net cash from operations 38,632,000$ (202,436,000)$ (34,669,000)$
Total adjusted capital 1,063,662,000$ 1,036,740,000$ 1,585,764,000$
Authorized control level risk-based capital 105,799,000$ 102,322,000$ 102,496,000$
Direct premiums written 235,413,000$ 232,874,000$ 565,300,000$
Assumed premiums written 588,233,000$ 594,637,000$ 798,535,000$
Ceded premiums written 38,203,000$ 35,951,000$ 45,179,000$
Net premiums written 785,443,000$ 791,560,000$ 1,318,656,000$
Net underwriting loss (10,284,000)$ (50,418,000)$ (140,607,000)$
Investment income 49,607,000$ 42,639,000$ 78,948,000$
Net income (loss) 32,771,000$ (2,121,000)$ (29,784,000)$
Net loss ratio 80.8% 86.5% 91.2%
Expense ratio 20.6% 20.0% 19.4%
Investment yield 2.8% 2.6% 3.6%
MORTALITY AND LOSS EXPERIENCE
The MID contracted with Merlinos & Associates, Inc. to review the actuarial analysis supporting
the Company’s carried loss and loss adjustment expense reserves. Based on the examination
actuarial evaluation, the Company’s estimates for gross and net unpaid loss and loss adjustment
expenses appear to be reasonably stated in all material aspects.
REINSURANCE
The Company has various reinsurance agreements with their wholly owned subsidiaries and
other companies. The effect of the agreements is for SFBCIC to carry only the casualty
exposures on its books and the Farm Bureau entities in the respective states to carry the property
exposures on their books, regardless of which company issues the policy.
Ceded:
The Company limits the maximum net loss that can arise from large risks or risks in concentrated
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 14
areas of exposure by reinsuring (ceding) certain levels of risk with other insurers or reinsurers,
either on an automatic basis, under general reinsurance contracts known as “treaties,” or by
negotiation for substantial individual risks. The Company maintains various forms of reinsurance
on essentially all lines. Ceded reinsurance is treated as the risk and liability of the assuming
companies.
The liability for losses and loss adjustment expenses at December 31, 2010 has been reduced for
reinsurance ceded of approximately $23,790,000. These amounts would represent a liability of
the Company if the reinsures were unable to meet their obligation for existing unpaid losses
ceded under reinsurance agreements.
At the examination date, the principle reinsurers and respective premium amounts ceded and
total amounts recoverable at December 31, 2010 were as follows:
Ceded
Premiums
Recoverable
Premiums
American Agricultural Insurance Company 14,805,000$ 25,751,000$
National Flood Insurance Program 22,971,000$ 16,588,000$
Platinum Underwriters RE, Inc. 171,000$ 361,000$
Partner RE US 86,000$ 180,000$
Berkley Insurance Company 86,000$ 18,000$
Assumed:
SFBCIC assumes the following lines of business from its related parties, as defined in the
Holding Company Registration Statements filed with the MID, and other Farm Bureau
companies: 100% of automobile, umbrella, flood and a portion of the casualty piece of the
property line (“excess casualty”). Excess casualty is the portion of the general liability coverage
that is provided in a package policy that also provides property insurance. For the excess casualty
piece, each had $500,000 loss retention in 2010.
At the examination date, the principle companies with which business was assumed and
respective premium amounts assumed at December 31, 2010 were as follows:
Mississippi Farm Bureau Casualty Insurance Company 190,776,000$
Louisiana Farm Bureau Casualty Insurance Company 187,907,000$
South Carolina Farm Bureau Mutual Insurance Company 111,213,000$
Louisiana Farm Bureau Mutual Insurance Company 38,031,000$
Colorado Farm Bureau Mutual Insurance Company 26,766,000$
Farm Bureau Mutual Insurance Company of Arkansas 18,901,000$
Florida Farm Bureau Casualty Insurance Company 10,546,000$
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 15
ACCOUNTS AND RECORDS
The Company utilized a computerized accounting system on which general ledger information
was maintained. Detailed general ledger information was traced to the trial balance and the
December 31, 2010 annual statement, without material exception.
The Company’s accounting and record keeping system was built around an IBM 2064-1CM
mainframe computer which administered server major application programs, as well as
proprietary software packages. Detailed premium and loss information was maintained at the
Farm Bureau state offices and was periodically uploaded to the Company’s mainframe for
financial reporting.
In lieu of a traditional internal audit function, employees from the Company’s state operations
and senior staff from the home office perform peer reviews which examine and review methods
and procedures utilized and standards followed in each state operation. The Company was
audited annually by an independent CPA firm.
STATUTORY DEPOSITS
The Company’s statutory deposits with the state of Mississippi complied with Miss. Code Ann.
§83-19-31(2). The following chart displays the Company’s deposits at December 31, 2010.
State Par Carrying Fair
Description Deposited Value Value Value
State Bond Mississippi 2,000,000$ 2,072,109$ 2,379,720$
Total Held in Mississippi 2,000,000 2,072,109 2,379,720
State Bond Arkansas 175,000 176,015 183,109
State Bond South Carolina 200,000 200,992 213,386
Total Held in all Other States 375,000 377,007 396,495
Total of all States 2,375,000$ 2,449,116$ 2,776,215$
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 16
SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY
FINANCIAL STATEMENTS
EXAMINATION AS OF DECEMBER 31, 2010
Introduction
The following financial statements reflect the same amounts reported by the Company and
consist of a Statement of Assets, Liabilities, Surplus and Other Funds - Statutory at December
31, 2010, a Statement of Income - Statutory for year ended December 31, 2010, a Reconciliation
of Capital and Surplus as Regards Policyholders - Statutory for examination period ended
December 31, 2010, and a Reconciliation of Examination Changes to Surplus - Statutory at
December 31, 2010.
Southern Farm Bureau Casualty Insurance Company
Statement of Admitted Assets, Liabilities,
Surplus and Other Funds – Statutory
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 17
December 31, 2010
Assets
Bonds 977,316,928$
Preferred stocks 200,000
Common stocks 531,438,976
Mortgage loans on real estate 6,811,444
Real estate occupied by the company 15,601,303
Properties held for sale 2,381,491
Cash, cash equivalents and short-term investments 31,030,526
Other invested assets 63,284,707
Receivables for securities 4,671
Investment income due and accrued 12,829,461
Uncollected premiums and agents' balances in the course of collection 2,649,109
Deferred premiums, agents' balances and installments booked but deferred and not yet due 91,661,100
Amounts recoverable from reinsurers 211,478
Funds held by or deposited with reinsured companies 15,554,984
Current federal and foreign income taxes recoverable and interest thereon 1,308,630
Net deferred tax assets 40,317,806
Guaranty funds receivable or on deposit 4,946
Electronic data processing equipment and software 4,917,007
Receivable from parent, subsidiaries and affiliates 2,535,326
Received from associated companies and other 5,321,433
Total admitted assets
1,805,381,326$
Liabilities, Surplus and Other Funds
Losses 299,932,835$
Reinsurance payable on paid losses and loss adjustment expenses 25,000
Loss adjustment expenses 55,083,001
Commissions payable, contingent commissions and other similar charges 7,568,108
Other expenses 1,876,155
Taxes, licenses and fees 1,944,053
Current federal and foreign income taxes 1,194,997
Borrowed money 18,708,242
Unearned premiums 218,746,051
Advanced premiums 20,187,824
Funds held by company under reinsurance treaties (227,698)
Amounts withheld or retained by the company for account of others 63,421,082
Drafts outstanding 306,231
Payable to parent, subsidiaries and affiliates 1,098,050
Liability under limited indemnity agreement 20,670,000
Postretirement benefit - other underwriting accrual 12,728,810
Postretirement benefit - loss adjustment expense accrual 11,707,638
Postretirement transitional adjustment 3,755,124
Payable to associated companies and other 2,993,838
Total liabilities 741,719,341
Capital common stock 1,082,842
Gross paid in and contributed surplus 620,491
Unassigned funds (surplus) 1,061,958,652
Surplus as regards policyholders 1,063,661,985
Total liabilities and surplus as regards policyholders 1,805,381,326$
Southern Farm Bureau Casualty Insurance Company
Statement of Income - Statutory
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 18
For the Year Ended December 31, 2010
Underwriting income
Premiums earned 785,776,356$
Deductions
Losses incurred 531,394,477
Loss adjustment expenses incurred 103,200,223
Other underwriting expenses incurred 161,465,244
Total underwriting deductions 796,059,944
Net underwriting gain (loss) (10,283,588)
Investment Income
Net investment income earned 44,059,596
Net realized capital gains 5,547,564
Net investment gain 49,607,160
Other income
Net gain or (loss) from agents' or premium balances charged off (122,400)
Finance and service charges not included in premiums 66,108
Assumed finance charges assumed under reinsurance contracts 3,448,544
Other miscellaneous income 1,660,834
Total other income 5,053,086
Net income before dividends to policyholders, after capital gains tax
and before all other federal and foreign income taxes 44,376,658
Federal and foreign income taxes incurred 11,605,274
Net income 32,771,384$
Southern Farm Bureau Casualty Insurance Company
Reconciliation of Capital and Surplus - Statutory
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 19
For the examination period ended December 31, 2010
2008 2009 2010
Surplus as regards policyholders, beginning of the year 1,628,674,161$ 1,585,763,538$ 1,036,739,792$
Net income (loss) (29,783,575) (2,120,835) 32,771,384
Change in net unrealized capital gains or (losses) 1,235,931 16,125,424 5,776,381
Change in net deferred income tax 11,447,550 8,088,038 3,745,841
Change in non-admitted assets (25,757,729) (8,234,979) (9,904,403)
Capital changes paid in (237,158)
Surplus adjustments paid in 203,825
Dividends to stockholders (52,800) (44,000) (5,467,010)
Withdrawal of shareholder (531,888,032)
Distributions under reorganization (30,916,029)
Change in surplus for the year (42,910,623) (549,023,746) 26,922,193
Surplus as regards policyholders, end of the year 1,585,763,538$ 1,036,739,792$ 1,063,661,985$
Southern Farm Bureau Casualty Insurance Company
Reconciliation of Examination Adjustments to Surplus - Statutory
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 20
There were no changes made to the assets, liabilities or surplus balances reported by the
Company for the year ended December 31, 2010. The surplus as regards policyholders, which
totaled $1,063,661,985 as of the examination date, was determined to be reasonably stated and in
compliance with Miss. Code Ann. §83-19-31.
Southern Farm Bureau Casualty Insurance Company
MID Examination as of December 31, 2010 Page 21
MARKET CONDUCT ACTIVITIES
A full scope market conduct examination was not performed; however, limited procedures were
performed on certain areas of the Company’s market conduct. The areas in which limited
procedures were performed included operations/management, complaint handling, producer
licensing, underwriting and rating, and claims. No significant exceptions with regard to the
limited procedures performed were noted.
COMMITMENTS AND CONTINGENT LIABILITIES
During and subsequent to the examination period, the Company was not involved in litigation
outside the normal course of business.
SUBSEQUENT EVENTS
On April 2, 2012, the MID gave notice that it would conduct an examination of SFBCIC and
other Farm Bureau related entities pursuant to §83-6-27, Mississippi Code of 1972 (the “Code”)
and other applicable laws and regulations of the MID including, but not limited to, §83-6-1, et
seq. of the Code (the “Holding Company Act”). The examination will include a review of the
relationships between SFBCIC and other associated companies and entities to determine
compliance with applicable Mississippi laws and MID regulations.
COMMENTS AND RECOMMENDATIONS
There were no comments and/or recommendations deemed necessary for purposes of this
examination report.
